Is This The End Of The Oil Glut

In recent weeks, the crude oil market has finally started to show signs that it could be heading toward rebalancing—the stated goal of OPEC’s cuts and the favorite buzzword of analysts and officials this year.

Saudi Arabia is cutting crude oil exports, notably to the U.S., in a renewed effort to influence the oil market after inventories continue to be high seven months into the production cut deal. At the same time there is record-high refinery input in the U.S. this summer.

Summer is a peak demand season outside the U.S. as well. In Saudi Arabia, crude oil is used to generate electricity for air conditioning, so Saudi exports are typically lower in summer months. But OPEC’s biggest exporter and de facto leader is pledging to cut August exports to 6.6 million bpd, which would be a nearly 1-million-bpd drop in total Saudi exports compared to the export level last year.

After a sluggish first quarter, global demand growth is also accelerating, and this is also expected to contribute to draining the excess supply.

In the U.S., crude oil refinery inputs averaged 17.3 million bpd during the week ending July 21 – this was an increase of 166,000 bpd from the previous week’s average, the EIA said in its latest weekly inventory data release. At the same time last year, in the week to July 22, 2016, crude oil refinery inputs were 16.586 million bpd.

Commercial crude oil inventories dropped in the week to July 21 this year by 7.2 million barrels from the previous week, to 483.4 million barrels.

According to the API, total U.S. petroleum demand in June was the highest for the year and the highest for the month of June in ten years.

On the other hand, U.S. imports of Saudi crude oil dropped in June to the lowest level since last November, according to ClipperData. Imports in July further dropped, and Saudi flows to the U.S. are at their lowest level since February 2015.

Since OPEC is cutting mostly medium and heavy grades supplies, demand for those has been up this year, which has led to a narrower spread between Louisiana Light Sweet (LLS) and Mars medium sour, Reuters columnist John Kemp has calculated.

The contango in the oil market is also shrinking, pointing to a tighter market.

On the global demand side, the International Energy Agency (IEA) said in its July Oil Market Report that after a lackluster 1.0-million bpd growth in the first quarter this year, there was a dramatic acceleration to 1.5 million bpd in the second quarter. “For 2017 as a whole, demand is forecast to reach 98.0 mb/d, with growth revised up by 0.1 mb/d compared to last month’s Report to 1.4 mb/d,” according to the IEA.

The strong U.S. crude inventory draws in the past four weeks, coupled with Saudi Arabia’s pledge to curb exports in August, boosted oil prices last week, and last Friday they finished their best week of the year. WTI Crude futures jumped 8.6 percent last week, and Brent Crude also gained around 9 percent.

The market sentiment, which was extremely bearish a month and a half ago, has started turning, according to some analysts.

“In a big way, we’re having a switch of market expectations from one that thinks these inventory problems are going to persist forever and ever to a situation where increasingly markets are starting to believe in this whole rebalancing, particularly in the United States,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, told Bloomberg.

Inventories were expected to drop in the peak summer season. Now the market and investors are waiting to see if it’s just a seasonal trend, or if the glut is really starting to shrink.

Poster’s notes; Notice, first the LAST paragraph.
That’s really all that matters. Inventories are
mostly optional.
Then, See Imports exactly two million barrels more then really required.

Summary of Weekly Petroleum Data for the Week Ending July 28, 2017

U.S. crude oil refinery inputs averaged 17.4 million barrels per day during the week
ending July 28, 2017, 123,000 barrels per day more than the previous week’s average.
Refineries operated at 95.4% of their operable capacity last week. Gasoline production
decreased last week, averaging 10.3 million barrels per day. Distillate fuel production
increased last week, averaging over 5.2 million barrels per day.

U.S. crude oil imports averaged about 8.3 million barrels per day last week, up by
209,000 barrels per day from the previous week. Over the last four weeks, crude oil
imports averaged about 8.0 million barrels per day, 3.8% below the same four-week
period last year. Total motor gasoline imports (including both finished gasoline and
gasoline blending components) last week averaged 549,000 barrels per day. Distillate
fuel imports averaged 108,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
Reserve) decreased by 1.5 million barrels from the previous week. At 481.9 million
barrels, U.S. crude oil inventories are in the upper half of the average range for this time
of year. Total motor gasoline inventories decreased by 2.5 million barrels last week, but
are in the upper half of the average range. Both finished gasoline inventories and
blending components inventories decreased last week. Distillate fuel inventories
decreased by 0.2 million barrels last week but are in the upper half of the average range
for this time of year. Propane/propylene inventories increased by 1.7 million barrels last
week but are in the lower half of the average range. Total commercial petroleum
inventories increased by 1.1 million barrels last week.

Total products supplied over the last four-week period averaged about 20.8 million
barrels per day, up by 1.4% from the same period last year. Over the last four weeks,
motor gasoline product supplied averaged about 9.8 million barrels per day, up by 0.1%
from the same period last year. Distillate fuel product supplied averaged about 4.2
million barrels per day over the last four weeks, up by 14.5% from the same period last
year. Jet fuel product supplied is up 5.8% compared to the same four-week period last
year.

bobinget on Wed, 2nd Aug 2017 9:45 am

Distillates (diesel) and Jet fuel are huge economic indicators. That 14.5% is the highest I can recall.

All oil price computers see are storage numbers.
(should be higher) Never mind. From this week forward, don’t be anticipating much import help from South America.

Two other factors. Rotterdam’s largest capacity refinery will be out of action for a minimum of three weeks. Rebuilding the power supply will take longer .

Davy on Wed, 2nd Aug 2017 9:57 am

Bob, 1.4% is less than a margin for error. Are you trying to crow about demand?

bobinget on Wed, 2nd Aug 2017 10:29 am

Davy, the four week average demand for diesel in double digits is bullish. AG harvests, sure. Trucking, general shipping greater then in years.

Remember, with Venezuela/Ecuador shipping to China, we are minus 450,000 B p/d.
Look for PoO over $80 EoY.

US refineries needing to push envelopes to export an additional three or four hundred thousand barrels p/d to help Europe for at minimum three weeks in AUGUST. (biggest consumer month)

I predict the remainder of the year will show draws
of five million barrels p/d, not counting SPR sales.
Here’s where extra inventory TODAY is bullish.
(two CA freeway hours worth)

When SPR is exhausted, emotionally or physically,
then and only then will we begin to realize what an
amazing deal China and Russia pulled off.
We here, some of us, already do.

Canada is not just a commodity play. .25 cents off
on every USD is nothing to sneeze.

rockman on Wed, 2nd Aug 2017 10:41 am

“Saudi Arabia is cutting crude oil exports, notably to the U.S., ” And imports from other countries decreased about as much as they have from the KSA.

Davy on Wed, 2nd Aug 2017 10:42 am

Bob, you Venezuela narrative is fantasy. What is it about the old men on the board they all are self absorbed in a fantasy world of a distorted reality. China is going to take a huge hair cut and so will Russia. The opposition may come to power with a pro-western leaning. Russia and China will be blamed for supporting the status quo. Too many open variables to be so decisive in thought.

bobinget on Wed, 2nd Aug 2017 10:45 am

You comment is saved, Davy

Davy on Wed, 2nd Aug 2017 11:24 am

Bob, last time I saved your prediction it didn’t end well for you. LOL

BobInget on Sat, 17th Oct 2015 7:24 pm

PS… I’m sticking with a January price prediction; $200. oil inter-day. $170 close December 31st 2015.
I’m guessing we will see $60 this month,
$78 in November.

Davy on Sat, 17th Oct 2015 8:11 pm

Bob, I will go off line for 2 week to honor such a ridiculous prediction if it were to happen in December. I am going to copy and paste to my notes your above prediction for future reference and a reminder to you of the folly of your cornucopian delusions.

Great Chart MASTERMIND. Really sez it all. The only gains in production have been shitty stuff, like fracking and tar sands with a mix of corn/bio fuels and refinery gains. Yes the overall volume of all liquid production is up. The problem being that there is no net economic, energy gain from any of it. So called glut or not.

boat on Wed, 2nd Aug 2017 4:32 pm

dave t,

I don’t remember seeing any chart showing refinery gains changing much for years. A typical barrell of oil is 42 gall which after refining turns into 45 gal of various products.
of course there has been economic gain from tar sands and fracking, at least for the consumer. 3.80 gosoline is now $2.00. Not only that but the US used to import 12 mbpd, the last few months, 4.5 mbpd. Hundreds of millions stay in N America. Please don’t make call you Short jr. One full blown idiot is enough.

q on Wed, 2nd Aug 2017 6:20 pm

Shale Production Combating High GOR And What It Means For Future Oil Production

Yea ok Boat so where has the gain been shown? Certainly not in GDP. The numbers are being cooked so that the upper 1-5% are showing economic gains but for the rest of us no so much. Or should I say more then nothing in Gains for the working class. As far as refinery gains go you are right the graph dose not show it. However What ever you want to call it the “oil glut” is a total farce and a deception to the masses to keep us all thinking endless growth on a finite planet is perfectly feasible normal and generational. Nothing to see move along don’t be an idiot and think TPTB do not know what they are doing.

Makati1 on Wed, 2nd Aug 2017 11:21 pm

dave, you and I know that TPTB are taking down the U$ to a 3rd world level so they can be controlled and have no ability to revolt, just slurp up he government Koolaid by the barrel.

The process is well underway and soon the market casino will crash, taking with it the future hopes of all of those who plan to retire or even live a comfortable life. Soon it will be work until you die for everyone but TPTB. Even they will not be able to resist the forces of Mother Nature for very long. No humans by 2100.